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California’s new unions: the rise and wreckage of occupational licenses

By Nicholas UmashevJuly 28, 2017

Occupational licensing has been receiving a lot of attention recently with Labor Secretary Alexander Acosta calling for state legislators to roll back burdensome licensing requirements. No place is this needed more than in California, the breeding ground of strong unions and stiff occupational licensing requirements.

While occupational licensing is viewed as a way to ensure quality, the ugly truth is that fencing out the competition reduces quality. Consensus is not on the side of the ‘quality’ argument for occupational licenses, only two of 12 major White House studies have found that licensing laws improved quality.

So if quality is not the reason behind occupational licensing then what is? With unionization falling and licensure rising, occupational licenses are replacing the economic hazard of unions. The percentage of unionized workers in the private sector has declined from 35% in the 1950s to 6.7%, while the percentage of workers now licensed has risen from 5% in the 1950s to nearly 30%. Occupational licenses are effectively the new unions.

Occupational licensing requirements have a widespread and deep reach in California. The Golden State ranks 7th in the nation for licensing burden, with a total of 62 low-income occupations licensed and requiring an average of 549 days of education. These licenses have cast a wide net, with one out of every five Californian’s needing to receive permission to work from the government .

By restrict entry into the market occupational licenses also result in lower job growth. Specifically, licensed industries experience up to 20% lower job growth than their unlicensed counterparts. This has prevented the creation of 3 million jobs nationally, according to a study from the Upjohn Institute for Employment Research.

Occupational licenses also increase wages at the cost of consumers. While we can cheer hooray for those licensed workers who now enjoy 15% higher wages,the party is ruined for consumers who now fork out an additional $203 billion a year. In fact, the increase in consumer prices in licensed industries ranges from 5% to a whopping 33%.

The rules surrounding work requirements are absurd if not petty. For instance, tree trimmers are required to complete 1460 hours of training, pass two exams, and pay $851 in licensing fees. Mobile home and security alarm installers are required to complete 1460 and 933 hours of training respectively. Addressing this, Senator John Moorlach attempted to push through Senate Bill 247, that would drop several of these license requirements, however it was struck down by the California Legislature in April.

Since occupational licensing agencies have the ability to deny work to those with criminal convictions they lead to significantly higher recidivism rates. With the ability to discriminate against ex-convicts, it is no wonder why California’s recidivism rate is 18 percent higher than the national average. States with the highest licensing restriction had an average 9% increase in recidivism from 1997 to 2007 – despite already having an above average recidivism rate.

Occupational licenses also harm entrepreneurship and business initiatives. A 2015 study from Arizona State University finds that heavier licensing correlated with an 11 percent lower entrepreneurship rate for low income people. You don’t need to look hard to see these effects, California has less startups per capita today than there were in 2000 with most of these firms employing a smaller percentage of Californians.

Overall, occupational licenses have negatively impacted job seekers, consumers, ex-convicts, and entrepreneurship all at the expense of higher wages for license holders. Our legislators should push for an end to the government’s anti-employment and anti-consumer regime.